Betting It All to Force a Turnaround

On Sunday, the Providence Journal kicked off its “Reinvent Rhode Island” series, with veritably the entire first section of the paper devoted to turning the state around, mostly in terms of employment. As much as the implied approach represents the common wisdom among Rhode Island’s opinion setters, it begins with the wrong premises.

To change its economy, Rhode Island needs to focus on the types of companies it wants to create and then the skills that workers will need to fill those jobs, according to economists who have studied the state.

Those are huge challenges that have to be met simultaneously.

State leaders have already embarked on a “meds and eds” strategy to create more jobs based on Rhode Island’s medical and higher-education institutions, where researchers and innovators work to create new products and services.

The problems are immediately obvious: First, “many states have been chasing those jobs for years.” And second, “the skill level of the workforce here does not match the needs of knowledge-based jobs.” In designing the state’s turnaround, its people have been handled less as a natural resource than as a malleable factor like infrastructure. Put differently, to attract the sorts of businesses that the state’s leaders have decided they want, or they think would be a good idea, people not involved in that decision have to recast their own careers in a particular direction. Moreover, once it’s pulled its residents through that retraining, Rhode Islanders may still find that they have more success finding work elsewhere.

Yet, a survey by the Association of Independent Colleges and Universities in Rhode Island found that only about one in three college graduates stays in Rhode Island.

If, as the article goes on to assert, these “are the innovators and job creators whose ideas can be turned into start-up companies,” then the state ought to focus on changing to fit their needs, not striving to change their chosen industry. While not directly related, this paragraph brings up an important point:

“If you don’t have these distribution centers in your state, and as Internet sales go up, you’re not going to get jobs out of retail trade because they’re shifting away from shopping malls,” [Paul E. Harrington, a labor economist and the director of the Center for Labor Markets and Policy at Drexel University] says.

One problem, here, is that Rhode Island law is set up to trap online retailers into collecting sales taxes on all goods sold in the state by counting “marketing affiliates” as a “physical presence.” Even if shipping and distribution centers don’t technically count as a “physical presence” for an online company with which they work, the fact that Rhode Island was among the first grab for online taxes (thereby losing many such affiliates that source of income when Amazon pulled the plug) shows that e-tailers would be wise to be wary of investing their business models too heavily in the state.

All of this is capped by an article describing former Apple executive Dan Walker’s belief that “you have to bet the state,” meaning put all of Rhode Island’s chips on whatever economic card its leaders choose to play. His model for the advice is Apple’s leap into digital music, but had Apple missed its bet, its wealthy executives would have gone on to other things. Its employees would have found companies that hadn’t folded. Its shareholders would have shifted their investments elsewhere. What do Rhode Islanders do when their state’s gamble falls flat?

The solution, seen between the lines of all of these stories, over and over, is to let the people who have the most motivation to make their lives work figure out how best to go about it. More than anything, Rhode Island needs to get out of its people’s way. Let them try things that legislators of the past have deemed too risky not to regulate. Free them of fees and taxes.

As a civic entity, Rhode Island has no problem letting its residents gamble away their money at slot machines, but it is reluctant to let them take the sorts of risks — as entrepreneurs, employees, and consumers — that can have a more comprehensive benefit to themselves and to the state. It isn’t only highly educated young adults working in flashy new markets who can innovate and create jobs. Coming up with a better model for delivering (say) plumbing services is no less an innovation, and with a little bit of leeway, people already in the state can set their experiments in motion.

Even if the state’s current crop of elected officials and bureaucrats constituted the greatest, most innovative business team ever known to humanity, people aren’t marshes that can simply be paved over. They have their own hopes and dreams, and since Rhode Island’s recovery ultimately relies upon their willingness and ability to increase their own productivity, the guiding philosophy ought to be allowing them to chase those hopes and dreams.

The Walker article had me holding my head in disbelief on so many levels. His advice is atrocious. The former Apple executive understands the corporate model, so he talks about what he knows (like the the drunk looking for keys under the lamppost because "that's where the light is") and advocates steering the complex economy of an entire state through a corporate command structure of strong leaders making "expert decisions" and "bold bets" in niche areas. This misunderstands the fundamental role and capabilities of government. Government is not a corporation and should not be run as one. Nobody should be making authoritative decisions about what markets "Rhode Island" should enter. The state leadership should be working to facilitate ALL business. Walker is essentially arguing for benevolent autocracy as a governing concept, as in much of the developing world, where the all-powerful leadership decides whether to invest in grain or mining or oil or shoe manufacturing as a country and forces everyone to get on board.

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